I am a former merchandising executive and the founder of First Insight, a technology company that delivers what is now the world’s leading platform empowering retailers and brands to introduce the right products at the right price. I am passionate about removing the distance between consumers and retailers, and exploring how retailers can identify and deliver what their customers really want.

The Next Merchant Prince - Are You A Market Dictator?

Last month, during NRF’s Big Show in New York, I had the opportunity to attend Financo’s 22nd annual Retail & Community Industry Seminar and CEO Event at the Harmonie Club. The CEOs of Whole Foods, Gilt Groupe, C. Wonder, and Under Armour participated in a lively panel discussion, and Mickey Drexler, CEO of J. Crew, stirred things up from the audience.

However, one quote in particular struck me, and I saw the quote appear again recently in Apparel Magazine’s e-newsletter. It was from Under Armour’s founder and CEO, Kevin Plank, who said: “The best merchants in the world aren’t trying to predict what’s cool. The best brands and the best merchants are dictating what’s cool.”

As I thought about this, I found myself wondering whether this is (or should be) a universal truth for retail merchants. Why does this approach work for companies like Under Armour and not for others? Why can’t all manufacturers and retailers dictate what’s cool?

The answer has to do with whether a company is defining a market or participating in an existing market. It also has to do with whether the company is a manufacturer or a pure retailer.

Under Armour invented compression T-shirts. Kevin Plank founded the company in 1996 based on his own experience as a college football player. He realized that cotton shirts got wet and heavy during the course of a game or practice, and he set out to design a shirt that provided compression and used wicking to keep the perspiration off your skin rather than absorb it.

Mr. Plank fabricated the shirt, found athletes to adopt it, and then marketed it to the masses. He convinced people they needed something that never existed before. There was no competition. Under Armour thus created a category and got to dictate “what’s cool.”

Apple Computer is another example. Who knew we needed iPods, iPhones, or iPads before Apple invented them? Steve Jobs was a master at convincing people they needed something that never existed before. Apple still dictates “what’s cool” for personal electronics.

Why doesn’t this approach work for retailers such as Dick’s Sporting Goods, Macy’s or Target? Or even for fast-fashion retailers such as Chico’s? First, these are primarily retailers as opposed to manufacturers, so their brand is the store or channel as opposed to just the product. Second, they are typically not “inventing” new categories. When Macy’s launches a new line of shirts, they are competing against other chains offering different shirt designs. In this case, the product differentiation is incremental, so it is difficult to “dictate” what the market should buy.

Even Under Armour has struggled. Their challenges lie within their shoe business among other areas. The market for athletic shoes is well-established, with significant entrenched competitors and pre-existing consumer expectations. Under Armour is not really in a position to “dictate what’s cool” in this category.

In launching new products into established markets, retailers and manufacturers would be well served to work to understand consumer preferences and predict what consumers will purchase. It’s a predictive versus dictative approach. The best companies are benchmarking new product candidates against existing competitive products to predict how well their new products will perform. Manufacturers are even using data analytics to predict which retail channels will best respond to each new product, and in which market segments (age, region, behavior, lifestyle, etc.) each product will best perform.

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